Following nine years of slow-but-steady success, what's next for Yazoo Brewing?

Created 10/28/2012 - 10:43pm

It’s 4:30 on a Friday evening, but for Linus Hall, it feels more like 8:30 Monday morning.

The drinking space in Hall’s brewery, Yazoo Brewing Co., is packed with patrons who have skipped out of work a little early to enjoy a glass or four of their favorite beer. With weekly hours limited to Thursday, Friday and Saturday afternoons, there’s only a short window to drink at the taproom adjacent to the actual brewery — which can be viewed through a glass panel or (for the true aficionados) up close on a tour. Hall and his team have been working hard all week, but that doesn’t stop them from milling about in the crowd, chatting and sitting with some of the regulars.

Yazoo just celebrated its ninth birthday, and Hall and his staff can surely look forward to their 10th anniversary as one of the most beloved and successful local breweries. Hit up most any local watering hole and you’ll find at least one or two of Yazoo’s beers on offer, either on tap or in bottles.

Hall, who ordered his first home brewing equipment out of the back of Rolling Stone magazine in college, moved to Nashville in 1996, initially working as a tire engineer with Bridgestone. His wife, Lila, worked at the Parthenon, and the new Nashville residents used Linus’ passion for home brewing as a way to make new friends.

“I was making so much beer at home that I couldn’t drink it all, and I was giving it away,” Linus Hall explained. “We’d go to a party, and you’d tell people what you did for a living, and you’d kind of see their eyes roll in the back of their heads, like, ‘Wow, tire engineering, that’s exciting.’ And I’d say, ‘Hey, that’s my pale ale you’re drinking; I brought some of my home brew.’ They’d say, ‘This is really good … you should quit that job.’ ”

Hall was starting to come to the same conclusion, and he admits the idea of starting his own brewery became an obsession. “I must have been talking about it for the millionth time,” Hall said, recalling a conversation with Lila as the couple walked around East Nashville’s Shelby Park years ago. “She said, ‘Linus, do it or shut up. You can quit your job, I’ll support us as much as I can, but you just need to do it or quit talking about it.’ ”

That nudge was all he needed to fully take the plunge. He quit his job, got an MBA from Vanderbilt and interned at the American Brewer’s Guild and Brooklyn Brewing Co. That fieldwork, combined with his advanced degree, gave him both the business acumen and the hands-on training he needed to start his own brewing company.

Hall chooses his words carefully, but speaks candidly. He took each and every step in building of the business thoughtfully. “I started doing some research, and I found that the reason why breweries back in the ’90s failed was that they either were making bad beer, or they were making such great beer that they expanded beyond what they could possibly keep up with,” he explained. He also noticed the growing popularity of small-batch beers at local restaurants Boscos and Blackstone, but saw a void in the market — and thus, an opportunity — since customers couldn’t get that same quality of beer outside of the restaurants.

Hall knew it would take a lot of capital to start a brewery, as the equipment and the initial overhead are expensive. Fortunately, he and Lila got the necessary gear at lower prices than expected. “We had bought some equipment at an auction for pennies on the dollar, which you can’t do anymore, because there’s so much demand for the equipment,” Hall said.

In 2002, the Halls signed a lease with Barry Walker at Marathon Village in a dilapidated corner spot. “When Barry showed us that corner, you had to really have some vision or be a little desperate and crazy. … I think we were more desperate and crazy,” Hall said, laughing. “I’d been out of work for almost a year, trying to get everything planned. All of the windows were boarded up, half the roof was falling in, and thousands of pigeons had been living there. It took us about 14 months to get it where we could actually start brewing there.”

One thing the Halls did have a clear vision on was the company’s name. The Yazoo River, which runs through the couple’s home state of Mississippi, was the site of their wedding. “Of all of the things we agonized about, we really didn’t think about the name too hard,” Hall said.

Once the brewing operations were set up, Linus had a grassroots strategy to market his beer throughout Nashville. “We thought if we just did a small-batch niche product and associated ourselves with some of the other small, chef-owned or family-owned restaurants in this town, that just by word of mouth we could get our own brand out there,” he explained.

When Yazoo officially opened in October 2003, the Halls forged onward with their slow-but-steady-wins-the-race strategy. “You either have to go methodically and grow from your cash flow — and the cash flow is pretty good — or you really go big and take on more investors and more debt and really ramp up your risk,” Hall explained. “My wife and I decided we were going to sleep well at night — and not just because we had a lot of beer — but because we didn’t want to have all of this debt hanging over our heads and all of these investors having 15 different ways they want to go.”

In the early days, he visited restaurants and bars personally, establishing relationships and building new accounts. “When you actually have the owner who made the beer, and who is really passionate about it, saying, ‘Hey look, if you like it, I’ll go get a keg and hook it up tonight,’ that really resonated,” Hall said.

He cited the Family Wash and two now-closed bars, Alleycat Lounge and The Sutler, as early adopters that helped spread the gospel about Yazoo. “In a lot of ways, they understood how hard and how risky it was,” Hall said. “And once they tried the beer, they were hooked. They knew that this is made right down the street, and if they had any problems, I’d show up in a truck with another keg and hook it up for them.”

Also, as any Nashvillian knows, word travels fast and a good — or bad — reputation can be built rapidly. “Nashville is not one big city; it’s a lot of small neighborhoods meshed together,” he said. “And once one place is starting to have success with something, everybody knows what everybody else is doing.”

After self-distributing for a year, Linus was overwhelmed by 50 accounts to call on and make deliveries to, in addition to ever-growing brewery duties that multiplied with the product’s success. In 2004, Yazoo signed with local distributor R.S. Lipman. For Hall, this step was necessary to get into retail outlets such as Kroger, Publix and Harris Teeter and large venues such as the Nashville International Airport or the Bridgestone Arena. “Bigger chains want to deal with one vendor for all of their beers instead of one little guy waiting for his $10 check at the end of the bar,” he noted.

Yazoo’s speedy growth far exceeded the Halls’ expectations, surpassing all the careful plans he made while earning his Vanderbilt MBA. “When I went to Vanderbilt, part of my schooling was that I developed a business plan,” he said. “So I had this five-year plan, and we hit that in year one-and-a-half, I think. We hit the ground running — I didn’t even look at [the business plan]. I found it when we were moving, and I was like, ‘Hey, look at this!’ ”

Lipman helped introduce Yazoo to the Chattanooga market, and Hall subsequently signed agreements with distributors in multiple territories. Hall said Yazoo has grown, on average, 30 to 40 percent per year. “To me, it seems crazy,” he admitted. “When you’re trying to manage that, [it] seems like a lot. We haven’t grown as fast as some breweries, but we’ve been able to do it without overloading ourselves with debt, and doing a lot of it out of cash flow.”

If there has been a speed bump to impede Yazoo’s success, it’s something that everybody can relate to: taxes. While most states tax by volume, in Tennessee, beer is taxed on a percentage of the price. When a distributor sells beer to a retailer, a 17 percent tax is added on top of the wholesale price.

A smaller craft brewer like Yazoo — which eschews the use of corn syrup or rice syrup and uses real hops instead of hops extract — pays for its commitment to high-quality ingredients. A smaller brewer doesn’t have the economy-of-scale advantage that a larger company enjoys, so a six-pack of beer must be priced higher. Accordingly, taxes are higher on a six-pack of Yazoo than a six-pack of Budweiser. Yazoo must adjust its wholesale price as the price of raw materials climbs, so every year the taxes on beer increase in a disproportionate amount to the amount of beer sold.

Ironically, the tax-averse state of Tennessee has the highest beer taxes in the country, at $37 per barrel. “It makes me crazy,” the normally unflappable Hall said. “And that $37 a barrel is an average between what we pay and what Budweiser and all of the other brewers pay, all lumped together. We’re so much higher than the average that it’s almost prohibitive to start a brewery here.”

Hall points to his friends at Mississippi-based Lazy Magnolia for an example. Lazy Magnolia Brewing Co. was interested in expanding their operations into Tennessee but found the tax issue to be too much of a barrier. “[Lazy Magnolia] is the same size brewery, selling beer to customers for the same price, and [they were] able to have twice as many employees because [they] made so much more, making beer down in Mississippi,” Hall explained. “Now that we’re selling our beer down in Mississippi, we make more — significantly more — selling for the same price, even having to ship it down there, than Tennessee does.”

Townsend Ziebold, managing partner at First Beverage Group, a Los Angeles-based financial service firm that specializes in beverage clients, said that while the tax issue may have an impact on brewery business in Tennessee, it’s not likely to be enough of a deterrent to dissuade a brewer from opening here. “In general, taxes are a cost of doing business,” Ziebold said. “The higher the tax, it either gets passed on to the consumer or it reduces the profit margin of the microbrewery. So on the margin, it would make Tennessee a slightly less business-friendly area to start a craft, but I don’t think that’s such a negative that it offsets the positive consumer trends and demand for craft.”

Hall hopes there’s a light at the end of the tax tunnel. He was elected president of the Tennessee Craft Brewers Guild, a network of smaller brewers in Tennessee, who plan to work with legislators to reduce these taxes. “It should be a level playing field for all beer — there’s no reason why small brewers in Tennessee are basically subsidizing the sales of the cheap beer, so we’re going to figure out a way to make it a level tax,” Hall said. “Even if we have to still be the highest taxed state in the union, we can at least be fair across the board. Nobody’s really going to have any opposition to it; we’re just going to have to figure out how to make it fair for all of the counties involved.”

The mission of the guild, Hall said, is to hold events to educate people about the great beer made in Tennessee, and to work with legislators to revisit the beer tax laws, which were initially implemented in the 1950s. The guild will hold their first fundraiser, Hopcoming, this Friday, Nov. 2, to raise funds to hire lobbyists. “Beer taxes have gone up every year without anybody having to vote for it,” he says. “[The guild] has seven founding members, and there are at least 22 brewers in Tennessee right now, so I think we’ll be a pretty big force of people who are fighting to have a good time and show people what Tennessee beer is all about, and change the tax laws as well. Everyone will understand how anti-competitive it is for small breweries in Tennessee.”

Today, Yazoo is available throughout Tennessee, Mississippi and parts of northern Alabama. For now, Linus is perfectly fine with that. “We really just want to have a regional footprint,” he explained. “Obviously, being from Mississippi, I really wanted to have our beer down there. We decided to focus on Tennessee, Mississippi and parts of Alabama, and really try to grow in those markets. There’s more than enough demand in those areas, especially in Middle Tennessee.”

To Hall, Nashville is filled with opportunities with the city’s expanding population, the rise of the restaurant scene, the influx of downtown residents, and the opening of the new convention center this spring. “We still think there’s a huge avenue for growth here. There’s tons of new restaurants opening up, and if you look at retail, we don’t have a lot of beer out in convenience stores, and we’re really just in the higher volume chain grocery stores. So as we expand, I think we’ll grow that way.”

This growth didn’t slow down during the recent economic downturn. While other businesses were shuttering their doors, Yazoo added more employees, bringing their total full-time employee base to 16 (a rotating crew of five part-timers assist with taproom and tour duties). “During a recession, I almost hate to say, because I know people out there are hurting, but we’ve seen crazy growth,” Linus said. “We’ve added five full-time people [in the past year] and our sales are up a good bit this year.”

So why has locally brewed craft beer proven to be recession-proof? Hall thinks it’s because craft beer is a relatively inexpensive indulgence that crosses demographic lines. “I attribute it to the people, even if they’ve lost their job or they don’t have as much disposable income, a six-pack of craft beer is an affordable treat. Even if you’re not going out as much, and you’re staying at home, anyone feels like they can afford the best beer. A lot of times, the best beers in the world are pretty affordable compared to a bottle of wine.”

Hall likens craft beer aficionados to wine enthusiasts, although he points out that the social nature of beer drinking tends to draw craft beer fans out more than your typical wine drinker. “It’s a lot of the same demographic, but I think that beer drinkers are a lot more social,” Hall said. “It’s more of a social idea to get together with friends to try different beers. A lot of wine people might stay at home, and try it there. But you smell the beer, look at the color, you’ll compare notes, you want to know where it’s from and what it was brewed with, and who made it, and what their philosophy on life is. They’re really similar, but I think that beer drinkers like to have a lot more fun.”

The craft beer market has exploded over the past decade, giving consumers more options from mom-and-pop companies like Yazoo. According to the Brewers Association, which defines a craft brewery as an independent business with a production size of less than 6 million barrels per year, there were 537 craft brewers in 1994 and more than 1,600 in 2010. In 2011, Yazoo produced 12,500 barrels.

Ziebold said the upward tick of craft beer drinkers is a trend echoed in bars across the nation. “Consumers, particularly younger consumers, are very much into variety, choice and different taste profiles, and I think the craft beer industry falls nicely into all of those macro trends,” he said. “You’re seeing this as a pretty broad national trend.

“If you go back to the ’70s, you had all sorts of local brands, and most of those either went out of business or were acquired,” Ziebold explained. “In the late ’80s to mid-’90s, you really had a lack of choice among consumers. I think that opened the door for the emergence of the craft beer industry. And I think the retailers and wholesalers welcomed it, because it presented them with more variety. Frankly, wholesalers can make more money off of a six-pack of a craft beer because they sell it at a higher-dollar point.”

But could this explosion of craft breweries be too much of a good thing? “I think, at some point, that pendulum may swing too far in the other direction, where you’ve got congestion in the market, and too many different varietals coming out,” Ziebold cautioned. “And at some point, the retailer and wholesaler will have to make some tough choices in terms of what they want to stock. At the same time, you’ve got the big guys — MillerCoors and ABI [Anheuser-Busch] — and they’re pressuring their wholesalers to be aligned with them. They are willing to have their key wholesalers take on craft beer, but not at the cost of their own core brands.”

If anyone’s carefully watching the rise of the craft beer market, it’s the big breweries. “ABI, MillerCoors and the larger breweries are suffering declines or flattenings of their key brands and they are observing this tremendous growth in craft,” Ziebold remarked. “So we believe they will selectively make acquisitions. The issue is that the brand typically has to be big enough to make a difference, because if they’re going to invest in a craft beer, they’re going to do it because they want to be able to grow it throughout their distribution footprint.”

Ziebold noted that there are only a few large craft companies, and those are not for sale. Big breweries like Anheuser-Busch and MillerCoors are instead searching for smaller companies that have an attractive flavor profile, a strong distribution network and a set of brands primed for growth. “I’d love to be able to tell you that there’s a clear metric. There isn’t,” Ziebold said. “Some of the other craft beer deals have been extremely small; MillerCoors took a position with Terrapin. The real issue is that there’s a scarcity of availability — most craft beer owners are not looking to sell today. That’s the biggest issue in the market, so it’s forcing the larger acquirers to go smaller than I think they’d ideally like to do.”

So with Yazoo’s consistent growth, why wouldn’t Hall & Co. want to expand Yazoo past their current markets or consider allowing a big brewer to take part ownership? Through his research, Hall knew that many microbreweries before him had faltered by expanding too quickly, and he has no desire to become the next Miller, or even the next Terrapin.

“If I was ever approached [by a big brewer], I would say no, because my intention — my wife’s intention, and everybody here — we’re just trying to grow as much as we can,” Hall said. “The story behind the brand and the people behind it is almost as important as the quality of the beer. Once it’s sold to one of these big corporations, I think a lot of the soul of the brewery starts to seep away.

“There’s a lot of lines getting blurred and it’s getting harder to tell who is who in the industry, who owns what percent of what and who is being distributed through what channel. A lot of people say, ‘As long as the beer tastes good, I don’t care,’ but I’m biased. I do care, and I think a lot of people do, and they want to feel like they’re supporting another independent local company versus a big multinational conglomerate.”

The taproom has grown rowdy, so we walk through the production area, where Hall briefly explains the brewing process, noting that the company — which moved to the current Gulch location in 2010 — now has three times the amount of equipment as when it started. “It’s a lot like cooking,”Hall said. “If you’re really comfortable with the ingredients, you probably have a good idea of how it’s going to taste in your head. If we’re using a new ingredient, we’ll do some small test batches to get an idea, and then move on to a bigger batch.”

Eighty percent of the company’s sales can be attributed to the two most popular beers, Yazoo Pale Ale and Dos Perros. “You either like beers with a sweeter finish or hoppier beers, and we have one that fits both of those,” Hall said. “Our Pale Ale is a balanced beer with the hops and the malt, and it’s one of my favorites, and Dos Perros is a little darker, maltier with a sweeter finish.”

Besides the two bestsellers, Yazoo’s cast of characters includes the fruity, Bavarian-style Hefeweizen; the rich, chocolaty Sly Rye Porter; the smooth yet satisfying Onward Stout; the potent, smoky high-alcohol Sue; and the ever-rotating Hop Project, which never uses the same blend twice (Yazoo is currently on the 68th version). In the past few years, Yazoo developed a recipe to revive Nashville’s legendary Gerst beer and formed a partnership with R.S. Lipman to create and produce Hap & Harry’s Lynchburg Lager. Most recently, Yazoo released the Bells Bend Preservation Ale, which uses hops grown on Bells Bend farms, including Sulphur Creek. Proceeds from the sales of the beer will benefit the farms’ CSA program.

While Hall stands firm on the physical expansion of his product, he’s eager to add to the current roster of beers. “We’re going to look at bringing in some new seasonals, expanding into more high-alcohol beers, more niche beers,” he said. He is particularly excited about working on sour beers, such as last year’s limited release, Fortuitous, a smoked, sour beer aged in Corsair bourbon barrels.

We move our crew upstairs, overlooking the operations of the brewery in a conference room dubbed “Yazoo World Headquarters.” A row of wooden pallets that have been converted into a beer bookshelf line one wall, and large, wrestler-style belts decorated with sparkly, puffy paint are drying in the middle of the floor. Both are the handiwork of Yazoo sales and marketing director Neil McCormick, who proudly boasts, “They don’t call me Neil ‘Pinterest’ McCormick for nothing!”

The belts are prizes for the Second Annual Yazoo Big Wheel Championship, one of the many inventive events that Neil oversees for Yazoo. In addition to this coed adult Big Wheel race, McCormick is the architect behind events such as Yazoo’s Barely a 4K Beer Run — in which participants don Yazoo capes — and The Amazing Yazoo Beer Machine Urban Adventure Race, a beer scavenger hunt in which teams race around the city to collect beer ingredients. These events are not exclusive to Nashville; true to Yazoo’s commitment to nurturing their markets, they’ve expanded into other cities. The next Barely a 4K Beer Run takes place in Memphis, and the latest Urban Adventure Race will be in Jackson, Miss.

McCormick’s infectiously enthusiastic, larger-than-life personality is a nice counterpoint to Hall’s laid-back demeanor. McCormick, who worked as a territory sales manager for Lipman Brothers, came onboard at Yazoo in 2008, and he couldn’t be bigger advocate for the brand.

“Talk to the majority of the bars and restaurants we work with today, and they can tell you that they remember when Linus brought in his very first growler of beer nine years ago,” McCormick said. “Today, people associate Yazoo with Linus and Lila. They associate it with the guy who was wheeling kegs into the brewhouse on Friday afternoon. Instead of just, ‘Yeah, we’ve talked to the rep once our twice, he’s a good guy, he brought us glassware and T-shirts,’ people know we’re not afraid to get our hands dirty and get out there and work for it.”

Nine years later, Linus and Lila, a mother of two who continues to work with the company, overseeing payroll, accounts receivables and — according to Hall — serving as the “creative conscience” of Yazoo, remain the figureheads of the company. “For us, we’ve been as transparent as possible with our business,” McCormick said. “Everybody that owns or is invested or is on our board of directors for Yazoo Brewery sleeps in the same bed every night.”

“[Lila] is the voice of reason for Linus and myself,” McCormick continued. “She gives a very objective opinion. The thing that she says on a regular basis is, ‘Are you still having fun? If not, then stop what you’re doing and do something else.’ That’s been an underlying current of everything we do at this company.”

As we sit in a circle, sipping our beers, Linus Hall explains why world domination is not in his business plan. “It started as a passion for the beer, and we wanted to be in control of our own destiny instead of working for some big corporation, and being able to take the risk,” he said. “If it didn’t work out, then we’d go back and get real jobs. But for the amount of beer that we could sell in Middle Tennessee, I feel like we haven’t even scratched the surface. And not just us. I feel like there’s a huge demand for locally brewed craft beers, and even if we wanted to, we couldn’t fill all of the demand.”

Perhaps this is why he doesn’t see newer microbreweries such as Jackalope or Fat Bottom Brewing as competition. “People say, ‘What about your competition? Jackalope is right down the road, and Fat Bottom is opening up in East Nashville.’ But we’re all doing our own thing, and we all have our own identity and marketing perspective. It’s nice to be compared with other local beers instead of all of the national brands.”

And on the local scene, Yazoo is perceived as the big fish. “People think that we somehow started this whole trend,” he said. “We were there in 2003, and some of the other breweries in town have been around for 15 years — Boscos and Blackstone — and we came in at a good time, for sure. We’re proud to have gotten where we are, but it’s not like we’re the old-timers.

“When you go outside of Nashville, we’re just this tiny little brewery that nobody has heard of before, versus all of the brands that they’re used to drinking,” Hall said. “Come back to Nashville, and people compare us to other startups, and they think we’re the big dogs. It’s all relative.”

Hall noted that Asheville, N.C., a city with around 85,000 residents — Metro Nashville clocks in at almost 1.6 million — has 11 breweries within its city limits. “If you go to drink a beer [in Asheville], it’s hard not to drink a local beer. And there’s no reason why a town like Nashville, with everything going for it, couldn’t support more than one or two local breweries. They could support 12, I think. And we’re halfway there.”

But back to that name. How do you say Yazoo? According to Linus, it’s yeah-zoo.

“It’s kind of a Mason-Dixon Line thing,” Hall said. “The further north you get, it’s definitely more yah-zoo, the further south, it’s yeah-zoo.